Former Employee Fails To Convince Court Of Underpayment In First And Last Weeks Of Employment

By: Gregory W. Homer and Marion B. Cooper

Methodically navigating the arcane maze of regulations surrounding the Fair Labor Standards Act (“FLSA”), the Court in Kirchoff v. Wipro, Inc., W.D. Wash., No. 2:11-cv-00568, 10/2/12, held that a technology consulting company (“Wipro”) did not violate the FLSA or Washington law by using the “Pay Period” – rather than the “Work Week” – method to calculate a fired senior manager’s salary for the first and last weeks of his employment.

Wipro provides consulting services to technology companies such as Microsoft Corp., Cisco Systems, Inc. and AT&T, Inc.  Wipro employed Kirchoff as a Senior Manager at an annual salary of $140,000 from July 26, 2010 to January 27, 2011, when Wipro terminated his employment.  Kirchoff then sued Wipro, claiming that he and other employees had been underpaid because Wipro used the “Pay Period” method to determine their pay for the first and last weeks of their employment.

An employer must generally pay an exempt employee his or her full salary for any workweek in which the employee works at all, regardless of the number of hours.  However, Department of Labor (“DOL”) regulations provide that “[a]n employer is not required to pay the full salary in the initial or terminal week of employment.  Rather an employer may pay a proportionate part of an employee’s full salary for the time actually worked in the first and last week of employment.  In such weeks, the payment of an hourly or daily equivalent of the employee’s full salary for the time actually worked will meet the requirement.”  29 C.F.R. §541.602(b)(6).  Additionally, “[w]hen calculating the amount of a deduction from pay allowed under paragraph (b) of this section, the employer may use the hourly or daily equivalent of the employee’s full weekly salary or any other amount proportional to the time actually missed by the employee.”  29 C.F.R. §541.602(c).

Under the “Pay Period” method of calculating an exempt employee’s pay for a partial first or last week of employment, the employer divides the employee’s annual salary into twenty-four semi-monthly pay periods to obtain a semi-monthly rate, which the employer then divides by the number of working days in the semi-monthly pay period to yield a daily rate for the pay period.  The employer then multiplies the daily rate by the number of days actually worked by the employee to determine the final compensation for the first and last weeks of employment.

Under the “Work Week” method, the employer divides the employee’s annual salary by fifty-two to calculate the weekly rate and then divides that rate by five, the number of working days in a week, to determine the daily rate.  The employer then determines the employee’s final pay by multiplying the daily rate by the number of days that the employee actually worked.

Kirchoff argued that 29 C.F.R. §778.113(b) requires employers to use the “Work Week” method.  While acknowledging that the approach specified in this regulation “matches” the “Work Week” method, the Court rejected Kirchoff’s argument.  According to the Court, Part 778, of which this regulation is a subpart, deals with Overtime Compensation, and Kirchoff’s dispute did not involve overtime, nor does the applicable regulation, 29 C.F.R. §541.602, incorporate or reference the overtime regulation.  The Court further noted that Section 541.602(c) permits the employer to use “any amount proportional to the time actually missed by the employee.”  The Court explained that Kirchoff’s interpretation that only the “Work Week” method is permitted would render the remaining language of the regulation meaningless, which runs counter to basic rules of statutory construction that presume that every word has some effect.

Focusing on Section 541.602(c), the Court found that Wipro’s method based on the percentage of days worked in the pay period was mathematically correct as a “proportionate part” of Kirchoff’s full salary.  The Court granted summary judgment to Wipro on Kirchoff’s FLSA and state law claims.

Employers must be careful when addressing application of FLSA regulations and be aware that the FLSA provides employers with multiple options for calculating employees’ pay for the first and last weeks of work.

Would Your Wage and Hour Practices Withstand Scrutiny?

By: Laurie A. Holmes

These are real headlines from the last four days:

  • Holiday Inn at LA Airport Hit with Wage Class Action
  • Bath & Body Works Will Pay $1.3M to End Managers’ Wage Suit
  • Texas Sales Managers Hit Gold’s Gym with Overtime Suit
  • FedEx to Pay $10M to Settle OT, Meal Break Suit
  • Kraft Paying $1.75M to Settle Sales Workers’ OT Suits
  • ZipRealty Pays $5M to Settle California Agents’ Wage Claims

Similar headlines from the last two weeks would fill this screen.  And these headlines do not reflect a new trend – rather, they are just examples of the many similar headlines featured almost daily in Labor and Employment publications.  In fact, a record number of wage and hour lawsuits have been filed in the last 18 months.  And there’s no sign that they will be dwindling any time soon.

Why are these suits here to stay?  For one, with the availability of attorneys’ fees and liquidated damages, they’re a boon for plaintiffs and their lawyers.  For another, given economy-driven layoffs, potential plaintiffs may end up in lawyers’ offices more often, looking for ways to strike back.  And don’t think you’re protected just because the former employee signed a severance agreement.  Employees cannot release wage and hour claims, even if your agreement says otherwise.  Perhaps most compellingly, the Fair Labor Standards Act is not the easiest law to comply with.  Ever try to compute the regular rate when non-discretionary bonuses are paid every week and the amount varies?  Do you really know what “independent discretion and judgment” is?  Do you know if you need to count the time employees spend at home checking their email as “time worked”?

What are the most popular practices targeted by plaintiffs?

  • Failure to pay overtime – either because the employer doesn’t like paying overtime or because employees are misclassified as exempt.
  • Failure to pay overtime at the proper rate.
  • Paying workers less than the minimum wage, especially tipped workers.
  • Failure to provide uninterrupted meal breaks of the appropriate length.
  • Retaliation against workers who complain.

What should you do?  Short of making everyone non-exempt and prohibiting overtime, ask yourself how confident you are that your classifications are correct.  If you’re not confident, call your lawyer and schedule an audit.  Review a sampling of time and pay records to ensure that overtime was properly calculated and paid.  Not sure?  Call your lawyer.  Don’t have time records?  Groan.

Finally, don’t think you’re safe because your company is not big enough to be on anyone’s radar screen.  Ever heard of 888 Consulting Group?  Savvy Car Wash?  Geosite Inc.?  Quicksilver Express Courier Inc.?  ZipRealty?  Me either.  But all of these companies have been hit with wage and hour suits.  You may not be able to avoid being sued, but an FLSA audit before that happens could help you minimize the damages.

Federal Court Holds that FLSA’s “Fluctuating Workweek” Method Violates Pennsylvania Law

A recent decision out of the Western District of Pennsylvania, Foster v. Kraft Foods Global, Inc., Civ. No. 09-453 (W.D.Pa. August 27, 2012), highlights the challenges employers face in simultaneously complying with both local and national wage and hour regulations.  In Foster, the court held that the “fluctuating workweek” method of overtime compensation – which is expressly permitted by the FLSA – is not permitted under Pennsylvania law.

Under the fluctuating workweek method, an employer pays a nonexempt employee a fixed weekly salary, regardless of the number of non-overtime hours worked.  This method is generally used in industries in which an employee’s hours change unpredictably from week to week based on factors such as customer demand or seasonal variation – e.g., lawn maintenance companies, golf courses, or the travel industry.  In using this method, the employer benefits from significant cost savings over traditional methods of overtime calculation and the employee benefits from the stability of a fixed weekly salary.

There are five requirements for using the fluctuating workweek method.  The employee’s hours must fluctuate from week to week; the employee must receive a fixed salary that does not vary with the number of hours worked (excluding overtime); the salary must be high enough that the employee’s regular rate of pay is at least the minimum wage; the employer and employee must have a clear mutual understanding that the salary is fixed; and the employee must receive overtime compensation equal to at least one-half the regular rate for all hours worked over forty.

In Foster, the court’s analysis focused on this last requirement.  The court held that “the payment of overtime under the FWW method, at any rate less than one and one-half times the ‘regular’ or ‘basic’ rate,” is impermissible under the Pennsylvania Minimum Wage Law.  We’ll be watching this decision (if appealed) and subsequent cases closely, because if this interpretation of the Minimum Wage Act is upheld, the primary advantage to the employer in utilizing the fluctuating workweek method is eliminated.  In the meantime, Pennsylvania employers who use this method to compensate nonexempt employees should reconsider their policies, given that it may no longer result in cost savings.  Moreover, this case should serve as a reminder that, although many local wage and hour regulations are modeled after (and in some respects identical to) the FLSA, compliance with the FLSA does not guarantee compliance with local statutes.

Is Relief on the Horizon for California Employers Attempting to Enforce Arbitration Agreements as Class Waivers?

By: Heather M. Sager

In California, a hotbed of wage and hour class and collective action filings, a recent appellate court opinion provides some long-awaited good news for employers attempting to enforce arbitration agreements as class waivers. In Reyes v. Liberman Broadcasting, Inc., plaintiff  Jesus Reyes worked for Liberman Broadcasting, Inc. from April to September 2009.  Pre-hire, Reyes executed an arbitration agreement.  In May 2010, he filed a class action alleging wage and hour violations on behalf of a putative class of security officers.  When it initially answered the Complaint, Liberman failed to raise the issue of arbitration.  In July 2011, Liberman filed a motion to compel Reyes to arbitrate his wage and hour claims as an individual (versus holding a role as a class representative).  The court denied the motion, finding that Liberman had waived its rights via the delay.  This led Liberman to appeal, resulting in a decision further interpreting the U.S. Supreme Court’s April 2011 decision in AT&T Mobility v. Concepcion, which held that the Federal Arbitration Act preempts state laws that invalidate class action arbitration waivers.  To date, courts have to date [delete] been split on whether Concepcion overruled the California case of Gentry v. Superior Court, which required class arbitration under certain circumstances. However, last Friday, the appellate court, in Reyes, reversed the lower court’s denial of Liberman’s motion to compel arbitrationIn so ruling, the Second District Court of Appeal held, “an arbitration agreement silent on the issue of class arbitration may have the same effect as an express class waiver.”  (The Second District Court of Appeal declined to decide whether the Gentry case remains good law following the Concepcion ruling, holding instead that Reyes failed to show that the Gentry factors made the arbitration agreement unenforceable.)

The Court of Appeal also held that although Liberman did not mention the arbitration agreement in its answer and had previously engaged in discovery in the case, the company did not waive its right to compel arbitration. In so holding, the appellate court found that Liberman reasonably concluded it could not enforce the arbitration agreement before the Concepcion decision, given the fact that several California decisions pre-Concepcion appeared to require class arbitration in similar contexts.  The Court of Appeal opined, the “risk [of compelled class arbitration] diminished substantially when Concepcion changed the legal landscape, and Liberman promptly informed Reyes of its intent to arbitrate one month after the [Concepcion] decision and filed its motion to compel a month later.”  Accordingly, the opinion stated, “Liberman did not act inconsistently with a right to arbitrate by not moving to compel until after Concepcion.”

The body of law on enforcing arbitration agreements as class waivers is still developing post-Concepcion, but perhaps Reyes v. Liberman Broadcasting, Inc. indicates that there is some relief on the horizon.

Federal Judge Rules for Nurses in Multi-Million Dollar Class Action for Unpaid Overtime

By:  Jerrold J. Wohlgemuth

A federal judge in Pennsylvania has signed off on a multi-million dollar settlement of a class action lawsuit for unpaid overtime brought by registered nurses against a number of hospitals affiliated with the Lehigh Valley Hospital and Health Network.  The nurses claimed in their lawsuit, which was filed in January 2010, that the Hospitals violated the FLSA and Pennsylvania wage law by paying them on a per-shift basis, failing to compensate them for reporting early or remaining on duty after their shifts ended, and also failing to pay for work performed during lunch periods or while attending training.  The $4.5 million settlement provides more than $2.5 million to the more than 2,000 nurses who joined in the lawsuit.  This is a significant development for hospitals and other health care providers who pay nurses on a per-shift basis.  While Pennsylvania and New Jersey have enacted statutes which prohibit mandatory overtime for nurses, the laws allow nurses to volunteer for extra hours and to work overtime in emergencies or unforeseen circumstances.  Nurses are entitled to overtime pay in such circumstances whenever they work more than 40 hours in a week.

U.S. Supreme Court to Hear Arguments in Case that Could Have Significant Impact on Strategies Available to Defend FLSA Collective Actions

By: Marion B. Cooper and Joshua Rinschler

The United States Supreme Court recently granted certiorari of a decision by the Third Circuit Court of Appeals, Symczyk v. Genesis HealthCare Corp., 656 F.3d 189 (3d Cir. 2011), a case that could have a significant impact on employers’ litigation strategy in putative FLSA collective actions.  The Third Circuit in Symczyk held that a collective action brought under the FLSA is not rendered moot when the defendant makes a Rule 68 offer of compromise in full satisfaction of the individual claim to a putative representative before the class representative moves for “conditional certification” and before any other plaintiff opts into the action.

Under the FLSA, an employee may file a “collective action” against an employer on behalf of himself and other similarly situated employees.  Unlike traditional class actions, however, the FLSA requires that the “similarly situated” employees affirmatively decide to join or opt into the collective action.  In Symczyk, the plaintiff filed a putative FLSA collective action, alleging that her employer, Genesis, automatically deducted her pay for meal breaks regardless of whether she performed any compensable work during the break.  After answering the Complaint, Genesis served the plaintiff with an offer of judgment for the full amount of her claims, including costs and attorneys’ fees, pursuant to Federal Rule of Civil Procedure 68.  Genesis then moved to dismiss the Complaint, arguing that the offer to pay her claims in full mooted the claims, depriving the plaintiff of any ongoing personal stake or legally cognizable interest in the litigation, and divesting the court of any jurisdiction over the case.

The district court granted Genesis’ motion, holding that an offer in full satisfaction of a plaintiff’s claims moots those claims.  At this point, no other employees had opted into the suit because the plaintiff had not yet sought conditional certification of the collective action.  Thus, the case was dismissed.  The Third Circuit reversed, holding that “conventional mootness principles do not fit neatly within the representative action paradigm.” Id. at 195.  The court compared FLSA collective actions to class actions, in which it is settled law that a defendant cannot moot a putative class action by making an offer of judgment to the named plaintiff before the class is certified and held that there was no rationale for treating the two types of actions differently.  Id. at 197-201.

Accordingly, the Third Circuit reversed, holding that “[w]hen Rule 68 morphs into a tool for the strategic curtailment of representative actions, it facilitates an outcome antithetical to the purposes behind [the FLSA].”  Id. at 200.  The Third Circuit remanded to the district court in order to allow the plaintiff to file a motion for conditional certification, which would then be deemed to “relate back” to the filing of the original complaint and thus preserve the district court’s subject matter jurisdiction. Id. at 201  The Third Circuit noted that if the mootness inquiry were based solely on whether another employee had opted in at the same moment a plaintiff receives a Rule 68 offer of judgment, employers would encounter little or no difficulty in “preventing FLSA plaintiffs from attaining the “representative” status necessary to render an action justiciable.”  Id. at 199.

The Third Circuit’s decision in Symczyk cited with approval the Fifth Circuit’s decision in Sandoz v. Cingular Wireless LLC, 553 F.3d 913, 922 (5th Cir. 2008) (holding that, although a Rule 68 Offer of Judgment could theoretically moot a FLSA collective action, the “relation back principle applies to ensure that defendants cannot unilaterally “pick off” collective action representatives and thwart availability of collective actions under the FLSA.”)

However, both the Ninth and Eleventh Circuits have held, to the contrary, that an offer of judgment for the full amount of the named plaintiff’s claims prior to the certification of a class does moot a collective action. See Smith v. T-Mobile USA, Inc., 570 F.3d 1119, 1122-23 (9th Cir. 2009); Cameron-Grant v. Maxim Healthcare Serv., Inc., 347 F.3d 1240 (11th Cir. 2003).

The Supreme Court granted Genesis’ petition for certiorari on June 25, 2012 and stated the question presented as “Whether a case becomes moot, and thus beyond the judicial power of Article III, when the lone plaintiff receives an offer from the defendants to satisfy all of the plaintiff’s claims.”  The Supreme Court’s decision in this case will likely have a significant impact on the strategies available to employers to defend against FLSA collective actions and will also resolve a circuit split on this issue.

The Court will hear the case in the term beginning October 2012, and a ruling is expected by the end of the term in June 2013.